Mortgage lending is a large business, with hundreds of billions of dollars of mortgage loans being made each year. The array of different mortgage loan types or mortgage loan programs is vast, with individual variations that can have major impact on cost. Very few borrowers have the knowledge base to effectively and efficiently evaluate all of the relevant mortgage variables such as rates, points, fees, terms and conditions. Specific borrower circumstances, such as anticipated income fluctuations and expected period of occupancy, are relevant to the decision process, and rarely receive appropriate attention. Applicants often receive advice from mortgage lenders (or “lenders”) which have a vested interest that may not be in the borrower's best interest.
There are currently more than 40,000 lenders in the United States including more than 38,000 mortgage brokers who control up to seventy percent (70%) of the residential loans in the country. In addition there are thousands of additional mortgage lenders (or “lenders”) such as banks, savings institutions and mortgage bankers. Selecting the best mortgage source once the mortgage decision is made can be a difficult decision. Most borrowers do not effectively survey potential mortgage sources. Most borrowers cannot effectively compare mortgage quotes due to the many terms and conditions which require sophisticated analysis for valid comparison.
As a result, the lender drives the process rather than the borrower, and negotiating with mortgage lenders for the best mortgage loan program may be done from a position of weakness, misinformation and lack of education. Many borrowers do not know what is involved in the credit approval process, and do not understand the use and results of automated underwriting systems. Many borrowers, therefore, cannot take full advantage of the advances in technology that some mortgage lenders are currently using. Further, once an approval is obtained from a lender, a borrower often feels committed to the particular mortgage lender that obtained and issued such approval. Once obtained, a mortgage approval is generally good for only that particular mortgage lender. In order to determine if other, better options are available, the borrower may need to individually contact and apply to many lending institutions at a high cost in terms of time and money. In other words, the mortgage lender appears to own the approval and the price being offered with the mortgage loan, and the borrower may believe that he/she has few options when it comes to selecting and negotiating the best mortgage loan terms. In addition, the borrower is not given the results of the automated underwriting decision, thereby preventing he/she from analyzing the merits and details of the decision made by the automated underwriting system. As an example, while the use of scores generated by Fair, Issacs & Co. (“FICO scores”) are widely used in underwriting decisions, and are one of the most important components of automated underwriting engines, the actual FICO scores and an explanation as to what those scores mean are not currently available to borrowers. As is known in the art, FICO scores are generated based on a borrower's payment history, credit available, and other factors.
In addition, borrowers often find themselves bargaining from a position of weakness when bidding on a potential new home as a result of not having a legally binding, fully approved mortgage approval. Sellers may decide to accept a lower or similar offer from another bidder, rather than wait for a borrower to receive full mortgage lender approval.
Lead generation is a major expense category for every lender, and increases the costs to the borrower. Mortgage lenders receive leads from a wide variety of sources, including print, radio and television responses, as well as referrals from current and previous clients and real estate brokers and responses to telephone solicitation and direct mail advertisements. It may be difficult, however, for a mortgage lender to effectively allocate resources for all leads. Not all leads are of equal value, and determining which leads to respond to first and with the most effective marketing tools may be difficult. Further, generating leads may be expensive and inefficient. The time and expense to take, process and obtain a credit decision on a loan application, while improved due to technological advances, may still be a long and expensive process. Once obtained, a mortgage approval is generally good for only that particular mortgage lender. Further, many mortgage lenders still generate data multiple times for a mortgage loan application: once to take the application; again to transmit the application for a credit report; again to transmit the application to a private mortgage insurance underwriter; again to transmit the application to either an automated or live underwriter at an investor or contract underwriter, and again to transmit the data to the final owner of the loan including the government sponsored entities, such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corp (“Freddie Mac”). In addition, mortgage lenders may find themselves working with a variety of vendors for mortgage related services in a time consuming and inefficient manner.
A manner of addressing these difficulties is offered by an online lender with limited comparison shopping feature on its mortgage site that compares its own mortgage loans to (only) five other lenders. This feature, however, does not compare among varying mortgage loan programs, nor does it respond with approvals from the list of searched lenders and as noted is very limited in the number of lenders it compares.
Several rate and information aggregator websites have been proposed or are in existence purporting to provide borrowers with an unbiased choice and wide selection of financial products. Some of these sites suffer from the drawback of allowing for only a pre-qualification and only from a limited number of lenders. These lenders pay by advertising dollars, by leads generated, or by loan applications generated and closed. Therefore, the choices presented to the borrower may be limited in the number of lender offerings and in the number and quality of mortgage loan products. By way of example, some aggregators may return quotes from three or four mortgage lenders and only provide information on lenders which are paying to participate. In addition, many mortgage lenders, on their own sites or on rate aggregator websites, are providing only a loan program and rate offer with a pre-qualification and not a true loan approval which has been run through a recognized and universally accepted automated underwriting system. Those sites that do offer a true online mortgage approval are often limited in that the approval they offer is based on the results from only one underwriting engine. This approval may be based on the lender's own underwriting engine or on the underwriting systems offered by Fannie Mae or Freddie Mac, but are not the result of multiple automated underwriting systems thus limiting their results by loan type, rate quotes and specific lender.
The business to business mortgage marketplace technology is being used to a significant degree to streamline the approval process and obtain time and cost effectiveness. There are a number of mortgage wholesalers that offer automated underwriting to their mortgage broker clients. In addition, there are some websites that will allow mortgage brokers to connect to online wholesale lender aggregators and obtain a Fannie Mae, Freddie Mac or other proprietary automated underwriting decision. However, this concept has not been extended to the borrower. While these systems encourage price comparison by the mortgage broker or lender, as well as technological efficiencies and price benefits to the mortgage broker or lender, the benefits do not necessarily flow to the borrower.
For those mortgage lenders that offer an actual online mortgage application and approval, these approvals suffer from the drawback that an approval is only valid for a particular mortgage lender and may leave the borrower in a position of weakness in negotiating favorable terms.